Yes, this is a total bogus demonstration. I've examined the footage and knowing basic application of some of the techniques you can tell that somethings not right here...take a look at the foot work on some of the techniques. I'm pretty sure some tai chi masters would laugh at this video.

In Chinese medical theory chi is one of four bodily humours, the other three being blood(xue) jing(vital essence) and jin (fluid). Breath supposedly controls chi and a chi gung "master" can move his chi to areas of the body for health etc. If one wants to find out about chi ask a qualified chinese medical doctor.
Concepts such as shooting ones chi and empty force are absurd theories that defy the basic laws of physics. The idea that chi has anything to do with fighting is beyond me.

I've heard of chi refer to breath, energy or cling (stick). Chi sao from Wing Chun means clinging or sticking arms. I've done a little soft Chi Kung (I think it means cultivation of energy). Soft Chi Kung seems be sets of exercises to relax and stretch the body like Yoga and involves abdominal breathing. I've seen mental Hard Chi Kung as well which is where you smash bricks with your head, push spears into your throat and have bamboo smashed into your nuts. That kind of thing and stuff where you knock someone down with your chi from a distance is of course BS. Unfortunately this makes the whole chi thing look silly.

If you watch Rickson Gracie's Choke, you'll see him do some weird abdominal breathing exercises. This is similar to Chi Kung breathing. He says "If you control your breath, you control yourself".

british ninja-
Yes breath control can have alot to do with fighting. For example striking when you exhale and defending when you inhale. Control of the breath is paramount to peace of mind. Relaxation of the mind and body improves coordination and fluid execution of technique(hsing yi ,bjj and judo among others). Perhaps this is how chi kung forms got mixed into systems of combat.
Once again 'chi' (a nebulous term even in China) as defined as energy in the body plays no role in being able to fight.